The title of this post is my alternative to Politico's headline which reads, "Barack Obama poised to hike wages for millions." What is actually happening is that Obama is proposing to raise the threshold for how much money an employee can make before he or she can be considered exempt from overtime rules (and thus exempt from filling in a time sheet).

As early as this week, the Labor Department could propose a rule that would raise the current overtime threshold — $23,660 – to as much as $52,000, extending time and a half overtime pay to millions of American workers.

The Obama Administration and its supporters (and apparently Politico, by how they wrote the headline) are smoking something if they think employers are going to react by raising salaries of current exempt employees being paid 23,660 or 30,000 or 40,000 to $52,000. Absolutely no way. There may be a few just under the $52,000 threshold that get a bump, but that will be a minor effect.

Everyone else is going to suddenly find themselves converted from a junior manager back to a wage earner. Companies are not going to allow these newly minted wage earners to earn overtime, and so I suppose one good outcome is that we may see a new boost in productivity as companies find ways to automate or eliminate junior management tasks to get all these folks down to 40 hours a week.

Five years ago, I might have really been in a panic over this in my company, but fortunately our experience with Obamacare has given me confidence we'll figure it out. With Obamacare we were facing enormous costs which we (like many service and retail companies) managed to eliminate by converting almost all of our full-time employees to part-time. Compared to that effort, figuring out how to get all of our managers down to 40 hours seems like child's play.

As usual, most of the costs of this regulation will be born by workers. As with other minimum wage-type laws, some will be better off, actually getting the "raise" promised by Politico, while some will be worse off, dropped to straight 40-hour work which does not pay as well, or out of work entirely.

However, this law has an even bigger impact-- it changes the relationship between the worker and their employer. There are important differences between hourly and salaried work in the relationship with employers. Some are psychological -- for better or worse, management things of salaried workers differently than hourly workers. And some are real -- salaried workers can try to demonstrate that they are worthy of promotion by working extra hours and taking on extra tasks, things that hourly workers really can't do.

He knows this, how? We have supervisors who do a fabulous job for $2500 a month and are happy to be making that.

But that is actually not the Hamermesh statement that I would rank most ignorant of reality. This is:

But Hamermesh said that to whatever extent employers reduced hours to avoid overtime the result would be more job creation, not less, since someone else must [be] hired to perform that work. Jared Bernstein, an economic adviser to Vice President Joe Biden during President Barack Obama’s first term, added that for many workers reduced hours would be a plus: “Their salary is the same but they have more time with their families.”

Are these guys for real? Employers are not going to give employees the same salary for fewer hours. They are going to try pay them less if they are getting fewer hours of work (of course their ability to do so depends on the labor supply). But the change is worse than this. They are not only getting fewer hours, but they are getting a different person and a different relationship. Before, say for a junior manager job, employers could get go-getters who worked 60 hours a week to impress management with their diligence and dedication, signaling they were ready for promotion. Now, employers will get time-clock punchers.

Sadly, this administration's lack of respect for and understanding of how the private sector functions has been devastating.

Jim Collins

In closed shops, wouldn't those "middle managers" have to become union members?

Gasman

I'm confused (not from the USA) - is there a federal law that states who is or isn't allowed to work overtime? Are companies not allowed to write their own employment contracts? Which bright spark started that?

Matthew Slyfield

One minor quibble, I dispute that most < $50K salaried employees are junior managers.

A lot of them are salaried professionals (accountants, IT) that are early in their careers. Labor wise we are sort of classified as management, because we support management decision making, including in negotiations with unions. However, No one in IT or accounting making < 50K is actually supervising other employees.

I work in IT, (started my first full time salaried position in 97) with 18yrs experience. I am making low (barely) six figures now, but I started at $35K.

I started working for an electric utility, a company that has to operate 24/7/52. If critical IT systems fail off standard business hours, someone has to come in and fix them ASAP. It is highly unlikely that the state regulators will allow utilities to recoup this new cost from the rate payers, in which case they will likely raise salaries to above the threshold and cut staff to compensate. Some will be out of work completely, and every one who still has a job will be working more hours for not enough extra pay.

HenryBowman419

Are these guys for real?

Well, they are for real in their own fantasy world, which has little to do with the actual world.

Matthew Slyfield

No.

However, there is a federal law that says some employees must be paid time and a half for any hours worked over 40 hours in one week. (Some states also require overtime for more than some threshold of hours worked in one day even if the total for the week is below the federal 40 hour threshold).

Companies don't like to pay mandatory overtime, because it's expensive, so they tend to restrict how much hourly employees can work.

All employees who are paid on an hourly basis must be paid overtime.

Most salaried employees are overtime exempt, we can be made to work 60 hours for exactly the same pay we would have gotten if we worked only 40 hours. Some companies will be generous and pay straight time for extra hours, but that isn't mandatory.

Part of the reason for this is that salaried employees are paid by the year/month, not the hour.

However, just being paid on a salary basis isn't enough to count as overtime exempt. This is largely handled through IRS regulations for payroll taxes and income tax withholding. There is a fairly long list of conditions that must be met for a position to qualify as overtime exempt.

randian

Timeclock punchers aka government employees are what Obama is most familiar with, so this is not surprising.

c_andrew

And there is an additional wrinkle here. State agencies are not required to pay overtime to their hourly workers unless there is an employment contract or union agreement in place. Certain Postal Contracting companies are also exempt from overtime requirements by Federal Law.
Try not paying YOUR workers overtime and watch the Labor/Industrial Commission land on the back of your neck.
(Well, you can't really watch that unless you've got a mirror or eyes in the back of your head.)

Let's say you have two campgrounds within 10 miles of each other. I don't know if you do or not but just play along. You have a manager for each. Maybe a lower paid manager, but I'm sure they have dreams of moving up in the organization, someday.

The latest greatest thing is a single manager overseeing multiple close locations, essentially eliminating all these lower level managers and just going with mini district/regional managers.

This trend was happening already due to Obamacare. I imagine these new overtime rules will only further it along.

Joe

However, just being paid on a salary basis isn't enough to count as overtime exempt. This is largely handled through IRS regulations

FYI - Its the DOL, not the IRS

Matthew Slyfield

Nope: I've actually looked it up, they did that through the tax regs.

Incunabulum

As a final note, I have to give the Coyote Academic Arrogance Award to Daniel Hamermesh of UT Austin who is quoted as follows:

“It’s hard to believe that somebody making $30,000 is a supervisor,”

This is just insane thinking.

1. When I first reached managerial/supervisory position in the military equivalent to a junior manager in the civilian world I was making around $30k at the start of that.

2. I live in SW AZ and the cost of living (and average income) are low - its entirely possible for someone to be in a managerial position (such as managing a franchise fast food restaurant) and be getting paid in the $30k range.

joe

Matthew Slyfield Joe • an hour ago

"Nope: I've actually looked it up, they did that through the tax regs."

Try again - US Title 26 gives the IRS zero authority to write over time regs.

And most of these comments, no doubt, come from tenured professors, the ultimate "salary" job.

marque2

In California, if you are a software engineer, you are considered hourly unless you make more than $47 and some odd cents a year. That means you need to earn more than $98,000 to be salaried. this was suppose to protect software engineers - however, CA is also nutty in that you get OT if you work more than 8 hours a day rather than 40 hours a week. So the poor software engineer, has a doctors appointment and has to take 3 hours off of work one day - will have to make it up that same day, or else the hours are lost - since they won't let him/her make it up the next few days since that will incur overtime. In other States with OT at 40 hours, at least you can work 4 hours on Monday, and 9 hours every other day to still get your 40.

Joe

California also has a lot of other DA labor laws such as not being able to work through lunch without a signed agreement and a separate agreement for each day. (DA does not stand for district attorney)

Jared Bernstein, an economic adviser to Vice President Joe Biden during President Barack Obama’s first term, added that for many workers reduced hours would be a plus…

Res ipsa loquitur

Massive economic stupidity on public display.

Joe

What will probably happen in many instances is after dividing an employee's weekly salary by 40 to come up with an hourly wage, employers (especially smaller companies) will trim back their hours to under 30 in an effort to avoid paying the employer mandate.

One wonders if the Obama Administration knows what they are doing or if they are completely ignorant about the real world.

LoneSnark

As is the norm for hourly workers...I guess now everyone not earning $50k a year should expect to get a second job, both working about 25 hours a week and neither paying health insurance.

Daniel Barger

It's been my observation that 'salaried' employees are the ones that don't bring any truly special skills to
the table so therefore REAL management makes them 'salaried' so they can work them MORE than 40 hours
a week without paying OT. You won't see many people with actual skills working salary. They are always
hourly employees who get OT and DT for working extra. Machinists and others in the trades work by the hour.
Medical personnel other than physicians are nearly ALWAYS hourly. People with real skills can and do demand
that their job pay OT if they are expected to work more. In healthcare the ONLY salaried employees are management, people who generally sit at a desk and never see patients. They rarely have to work more than
40hours a week and often get away with delegating responsibilities and don't even show up for the full 40.
So the salaried vs hourly is as much about the skills and values of the employee as it is about anything else.

Jacob Williamson

Well, to be fair, If you were making 35k in 97 then that is about the equivalent of 51.5k 2015 dollars and so you would have been right around the threshold to escape the new overtime regulations (assuming the number will be 52k).

obloodyhell

Stupid Donkey...?

obloodyhell

Time to punch Obama's clock....

Q46

'But Hamermesh said that to whatever extent employers reduced hours to avoid overtime the result would be more job creation, not less, since someone else must [be] hired to perform that work.'

The Man of System mentality which assumes individuals are like chess pieces incapable of independent agency and reaction and resistance to be pushed around.

I offer as Exhibit A... La France where a 35 hour week was introduced and early retirement at age 55.

The reasoning: a) employers would 'have' to employ more workers to do the work that the reduction from a 40 hour week to 35 hour week would leave undone; b) early retirement would release jobs for younger workers.

The results: chronic overall unemployment increased to around 11%; chronic unemployment in the 16 to 25 age group around 26%.

Sarkozy when President relaxed the 35 hour rule but there were few takers as many workers had got used go not working longer, so Sarky said overtime would be tax free, still few takers.

In short employers just did not hire to maintain output and so, for example, we are used to gaps in supermarket shelves where product is on back order and/or supermarkets do not have the staff to keep them filled.

obloodyhell

}}} delicious irony which almost makes me believe there is a God

You should. He does love Him some irony in His breakfast... 😀

Old dude

In Ca the 8 hour rule makes it hard for anyone to clock their 40 hours. If you are 15 min late, you can't skip a break or take a short lunch. You lose the 15 min. This adds up at the end of the month with everyone losing a couple or a few hours. If you try to be a good guy and let folks make up time you are putting your company at risk of fine. Or you can accept the actual intent of these laws and move your low class, low wage business out of Ca like you are being encouraged to do.

marque2

Yes, exempt and non-exempt are covered under the Federal "Fair Labor Standards Act" It declares outside sales and movie theater employees, and farm workers ineligible for mandatory OT, as an example.

States of course can be more restrictive (see my post about CA software engineers)

I've seen some of Hamermesh's work before -- he's a decent economist who has done a lot of research on labor economics over the years. His comment here is a bit of a head-scratcher, though.

Bernstein, on the other hand, is a mendacious turd. He was one of the loudest cheerleaders for a higher minimum wage, and blithely dismissed the possible negative labor market outcomes that might follow, claiming that "most studies don't find these kinds of results" (which is wrong), and that the vast majority of workers would be economically better off as a result. Now he is frantically trying to move the goalposts to claim that workers will be better off even if their incomes don't rise, because they will be able to spend more time with their families, which is a euphemistic way of saying that their hours have been cut.

Evan Þ

That's probably true in some fields, but not everywhere. At the Very Large Software Company where I work, all the programmers - no matter how skilled or unskilled - are exempt. It's the same way at the pharmaceutical analysis company where one of my friends works. And, as far as I can tell, both of those are industry-wide standards.

Evan Þ

"It’s hard to believe that somebody making $30,000 is a supervisor."

I'm sure it is hard to believe, for him. Fortunately, "reality is that which, when you stop believing in it, doesn't go away."

Matthew Slyfield

That isn't an industry standard, it's a legal standard.

"However, there are special provisions which exempt
some computer employees who might not otherwise qualify as "professionally"
exempt. These include systems analysts, programmers (who "write
code"), or software engineers. More specifically, the special
computer employee exemption applies to workers who apply systems
analysis techniques and procedures to determine hardware, software,
or system functional specifications, or who design, develop, test
or modify computer systems or programs based on user or design specifications."

The psychological is when the formerly "autonomous" manager is told he cannot stay a few minutes late to finish something but must get up and leave when he hits his 8 or he will be written up.

As an hourly employee, non-exempt, the manager must not permit the employee to work over or they can claim OT. With exempt employees, in the federal workforce, if an employee works over without prior permission, then tough. For OT to be paid, it must be prior approved or ratified by the manager.

So hourly employees are kept tight watch over to prevent incurring OT charges. Many resent that they are watched like children and not permitted the flexibility to take a few minutes over to finish something.

sailor116

Two things happen, in real life, when employees are salaried:

1) People who really want to move up in the company and are able to do so, end up working extra hours to show off. And then they get to move up. And as such, their extra labor is repaid. Everyone wins.

2) People who are never going to move up in the company get assigned extra hours above what they should be doing, because it is (obviously) cheaper for the employer to have them stay 10 hours and balance the books, than to pay a bookkeeper to do so. Call it "hour creep" or "mission creep" or "ob creep" but it happens all the time/ And they don't really move up, but they do end up working for more hours. And as such, their extra labor amounts to a wage reduction--but one which doesn't show up on the balance sheets, and which won't qualify them for unemployment, and which isn't obvious to anyone but them. The employees lose, at least relative to what they would otherwise be doing; the employer wins.

For some reason I don't fully understand, you seem to be pretending that only #1 matters, and ignoring #2.

Karl Bonner

The whole point of salaried employees is so that you can assign them "three days' work for two days' pay" and get away with it. You can't do that with hourly employees unless you're a very unscrupulous employer. But practically every major company squeezes and exploits its junior management in this way - because after all, those few super-tough guys and gals have a fighting chance to eventually break through to senior positions!